As new premier Li Keqiang noted some years ago, China’s GDP statistics are “man-made and therefore unreliable”. But as leadership targets, they are very important in signalling the direction to be taken. Thus the blog is quite amazed that the financial sector has only now begun to wake up to the implications of the new policies announced in recent months.
Analysts had clearly maintained a short-term focus on day-to-day developments, and ignored the bigger picture. Yet Li and President Xi have made it quite clear they intend to rebalance the economy away from exports and towards encouraging domestic consumption. And as the blog noted in the Financial Times a year ago, average incomes in China are a tenth of those in the West, so growth in this New Normal will be much slower than before.
Just how slow is, of course, still not clear. But data for China’s electricity consumption – a much more reliable indicator than GDP according to premier Li – may provide some important clues. As the chart shows:
• It grew at just 4% in Q1 (red square) versus 9% in 2012 (green)
• Equally, March was only up 2%, confirming the message of February’s slowdown
• Even more significantly, the leadership showed no sign of panic over the numbers
• There was no suggestion of new stimulus; instead, as China Daily reports, Li noted:
“Overall, the Chinese economy had a smooth start in 2013. But many uncertainties, both at home and abroad, still persist and make the overall situation quite complicated. The producer price index fell 1.9% versus 2012, reflecting operational difficulties and pressure on profit growth in the industrial sector amid weak market demand.
“To better grasp the curve of the economy, it is imperative to strengthen foresight,” Li added, “as this will be crucial for the sustained development of the economy”.
Taken together with the increasing number of curbs on property prices, it seems clear that the new leadership has decided to act quickly on the major problem areas. The housing bubble, and debt build-up in local government (now 20%-40% of GDP), have to be addressed whilst they are in their honeymoon period. They cannot be left till next year.
Action today will be good news for long-term growth. But in the short-term it will likely provide a very bumpy ride. The parallels with 1993 are therefore looking more and more relevant.